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Discussion Paper
Developments in the Credit Score Distribution over 2020
The distribution of household credit risk can vary with aggregate economic and credit conditions. For example, the share of subprime-scored borrowers declined at a relatively steady pace during the economic recovery from the Global Financial Crisis. Although the COVID-19 pandemic interrupted the economic conditions that supported this trend, the pace of decline accelerated following the pandemic’s onset in March 2020. The analysis that follows suggests that this acceleration was largely driven by the Coronavirus Aid, Relief, and Economic Security Act’s (CARES Act) forbearance provisions.
Working Paper
One Month Longer, One Month Later? Prepayments in the Auto Loan Market
We document a secular trend of increasing auto loan maturity from 30 months to over 70 months during the past 50 years, partly reflecting improved vehicle durability. Analyzing over half of the auto loans originated during the past 16 years, we find that longer-maturity new car loans have significantly higher interest rates with a yield curve much steeper than comparable-maturity Treasury securities. In addition, we show that the majority of auto loans were prepaid, including loans of zero-interest, and that many prepaying borrowers could have paid less interest by choosing loans of a shorter ...
Working Paper
New evidence on 401(k) borrowing and household balance sheets
Despite news reports suggesting a rise in 401(k) borrowing in recent years, we find that the share of eligible households with 401(k) loans in the 2007 Survey of Consumer Finances was about 15 percent, roughly what it has been since 1995. We find that the best predictors of 401(k) borrowing appear to be the presence of liquidity or borrowing constraints and the size of 401(k) balances relative to income. Since the ongoing financial crisis has likely caused these factors to move in opposite directions, the predicted effect of the crisis on 401(k) borrowing is ambiguous. More fundamentally, we ...
Discussion Paper
Are Income and Credit Scores Highly Correlated?
To the best of our knowledge, statistical analysis on the relationship between income and credit scores using proper data remains scant. Using a unique proprietary data set, this note attempts to fill the gap in our understanding of this relationship.
Discussion Paper
Who Drives Luxury Cars (Only for a While)?
Household consumption of luxury goods has attracted increasing attention in various areas of finance and economics research.
Working Paper
Borrowing from yourself: 401(k) loans and household balance sheets
We examine 401(k) borrowing since 1992 and identify a puzzle: despite potential gains from borrowing against 401(k) assets instead of from other sources, most eligible households eschew 401(k) loans, including many who carry relatively expensive balances on credit cards and auto loans. We estimate that households with access to 401(k) loans could have saved about $3.3 billion in 2004--about $200 per household--by shifting debt to 401(k) loans. We find that liquidity constrained households are most likely to borrow against their accounts; however, the fastest growth has been among higher ...
Working Paper
Credit Scores, Social Capital, and Stock Market Participation
While a rapidly growing body of research underscores the influence of social capital on financial decisions and economic developments, objective data-based measurements of social capital are lacking. We introduce average credit scores as an indicator of a community's social capital and present evidence that this measure is consistent with, but richer and more robust than, those used in the existing literature, such as electoral participation, blood donations, and survey-based measures. Merging unique proprietary credit score data with two nationwide representative household surveys, we show ...
Working Paper
Gamblers as personal finance activists
Gambling behavior can serve as an informative indicator of important household heterogeneity that is difficult to observe directly in data. We present, to the best of our knowledge, the first comprehensive study of the consumption and personal finance of gamblers using a nationwide representative household survey. We find that consumers are more likely to gamble when income is higher than its normal level predicted by observable characteristics, and that nongambling expenditures tend to increase with gambling activities. In addition, gamblers are more likely to concurrently have various types ...
Working Paper
Choice of mortgage contracts: evidence from the Survey of Consumer Finances
This study revisits the empirical question of the determinants of the choice between fixed and adjustable-rate mortgages using more comprehensive data from the Survey of Consumer Finances (SCF) that overcome some of the data limitations in previous studies. The results from a Logit model of mortgage choice indicate that pricing variables and affordability are important considerations. We also find that factors such as mobility expectations, income volatility, and attitudes toward financial risk largely influence mortgage choice, with more risk-averse borrowers preferring fixed-rate mortgages. ...
Working Paper
Do high debt payments hinder household consumption smoothing?
Recently, U.S. households have committed a rising share of disposable personal income to required principal and interest payments on household debt. Studies of the direct link between the household debt service ratio (DSR) and consumption show mixed results?perhaps because debt may instead alter the relationship between consumption and income. We explore this possibility by comparing the consumption smoothing behavior of households over the DSR distribution. We find that a high DSR alone does not indicate higher sensitivity of consumption to a change in income. However, we find evidence that ...